Expert Stephen calls for new law to prevent overspending

THOUSANDS of people will have gone bust over the festive season or will start the New Year severely in the red. And the prospects for 2004 are even more grim than usual, with record bankruptcies looming on the horizon.

THOUSANDS of people will have gone bust over the festive season or will start the New Year severely in the red.

And the prospects for 2004 are even more grim than usual, with record bankruptcies looming on the horizon.

Approximately 30,000 people are declared bankrupt in the UK each year. "Unfortunately, a whopping 17 per cent of this figure, or 5,000, file for bankruptcy during December which turns the Christmas spirit sour," said Stephen Quinn, a bankruptcy specialist and business recovery partner in the Manchester office of accountancy firm Baker Tilly.

Stephen regularly gets involved with personal insolvency cases with unsecured liabilities over £20,000. The reasons, he says, are depressingly obvious. People spend "plastic money" they don't have on Christmas presents, entertaining, travelling and luxury items, which would be rejected during any other time of the year.

"It's widely recognised that consumer spending is the biggest contributor to economic growth, unlike previous economic cycles where consumer spending accounted for a much smaller proportion of growth.

"To add to this, new bankruptcy laws set to come into force in April will probably only serve to make the situation worse.

"Under the new rules a bankrupt will be discharged one year after the date of the bankruptcy order in most cases, instead of the current general period of three years.

"These new rules are an attempt by the government to reduce the stigma of bankruptcy and encourage entrepreneurship, but it is likely that more people will use it as an opportunity to run up debt, file for bankruptcy and then be discharged after 12 months."

This, he warns, is really the opposite of what needs to be done. "The UK actually needs new laws to protect and deter people from getting in over their heads by over-borrowing and overspending."

Pressurised

Although Christmas is supposed to be a happy time it is, in fact, the worst period of the year for people indulging way beyond their means.

"Every year people feel pressurised into spending money they don't have on the latest toys, gadgets and computer equipment. Although it helps them to have a happy Christmas it also sets them up for a miserable New Year when they open their credit card bills at the end of January."

Every year there are people who get themselves into far more financial trouble than an overstretched credit card or two in December.

He says the case of one former client should act as a warning to others. An administration worker, she had originally taken out a joint loan with her husband for car and home improvements.

"Her husband became unemployed, stretching finances to the limit, and they starting to use credit cards to supplement their income, as her own earnings were not sufficient to meet joint outgoings," Stephen explained. "The ready availability of credit soon meant that she had taken out several more credit cards. However, the increased interest burden meant that she found it impossible to keep up payments and took out more loans.

"Debt was financing day-to-day living expenditure as all earnings were being paid against interest alone. In total, the client took out eight store cards, three unsecured loans and nine credit cards, all from different finance providers.